That would mean that it would fall to 2.33% by 2024. Therefore, it seems reasonable to assume that the FCF yield might fall by (i.e., increase in value) by 20% annually over the next four years. In other words, we want the FCF yield to be lower in four years from now.įor example, right now the Dropbox FCF yield is 5.69% (i.e., $480 million Q2 run-rate FCF divided by its market capitalization of $8.63 billion). So as the FCF goes lower, the value of the stock goes higher. The FCF yield is the annualized FCF divided by the stock’s market value. If the DBX FCF yield does better over the next four years, the stock could rise by more than 20% per year. In other words, if Dropbox stock follows its FCF growth, it could rise by at least 20% per year over the next 4 years. That works out to a compound annual growth rate of 20.1% each year. FCF will have to rise by $520 million, or 208%. We can project the level of growth that they foresee in the next four years ending 2024. For example, its Q2 FCF of $120 million works out to an annual FCF run rate of $480 million. They are at about the halfway mark right now.
Moreover, Dropbox’s management forecasts that they expect to reach $1 billion in annual FCF by 2024. In other words, the company is getting more efficient at producing FCF as its revenue and FCF grows. First, this past quarter its FCF grew by $25 million over the past year, or up 26%.Īnd second, its FCF margin was just 23.7% last year, but in Q2 2020 it rose to 25.6%.
That means the stock will be up at least that much and possibly higher. Moreover, earnings and FCF should grow at least 16% next year. As such, it is a steady revenue and FCF earner. Dropbox makes money from annual subscriptions to its data storage business, mostly from small business and enterprise clients.
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